I was browsing BoIs mortgage terms and conditions (out of interest, you know) and came across this:
Bank of Ireland Mortgage Bank - Prudent Market Value for the purposes of the Asset Covered Securities Act, 2001 Regulatory Notice (Section 41(1)) 2004 [Irish Residential Property Assets/Mortgage Credit Assets]. For the purpose of satisfying publication requirements which apply under the above referenced regulatory notice, Bank of Ireland Mortgage Bank hereby gives notice that the Prudent Market Discount that applies in relation to Bank of Ireland Mortgage Bank for the purposes of that regulatory notice is currently 0.15 (in percentage terms 15%).
Does this mean that assets securitised are at a 15% discount? So the banks won’t feel pain until property falls 15%?
Edit: I found this:
ifsra.ie/data/in_bci_files/R … 2041.1.pdf
but it doesn’t clear a lot up for me except there is one interesting bit on the valuation of Irish residential-backed paper:
Reference Index: The “Reference Index” for the purposes of certain calculations
which are to be made by designated mortgage credit institutions in respect of Irish
Residential Property Assets under this Regulatory Notice is:
(a) where the relevant Irish Residential Property Asset is situated in the
county of Dublin (meaning the city of Dublin, Fingal County, Dun
Laoghaire Rathdown County and South Dublin County), the Dublin house
price index; or
(b) where the relevant Irish Residential Property Asset is situated elsewhere in
the State, the non-Dublin house price index,
in each case, the relevant index being that published by Irish Life & Permanent
plc (trading as permanent tsb) and compiled in association with The Economic
and Social Research Institute.
Does this explain the mythical content of the PTSB/ESRI index? At the very least it makes it suspect as it directly affects what banks can value their securitisations at for repo purposes? (Where they sell the security to themselves).